skanuj0002

Lecture 1:		What is a financial system? • A set of organised of organised markets, individuals and institutions which trade in
A financial system		those markets together with supervisory bodies (regulators) of those markets and institutions
		• The end users of a system are people and firms who want to lend and/or borrow

A choice for the end users - 1

• To deal directly with one another -The easiest

- Costly, risky, inefficient and very unlikely

A choice for the end users - 2

• To use one or morę of many organised

markets

-    Stock exchanges, e.g. in financial centres, LONDON, NY, TOKYO

-    Used by financial firms, non-financials and individuals

-    Lenders buy the liabilities issued by borrowers

•    Newly issued: the issuer receives funds directly from the lender

•    An existing liability: a lender buys it from another lender, refinancing an original loan, a borrower may be unaware of it

A choice for the end users - 3

•    To deal via institutions or intermediaries

•    lenders have assets, which cannot be traded, but returned to the intermediaries - deposits, contributions to a life assurance or

pension fund

•    intermediaries create liabilities (loans or others) for borrowers